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May 2016 Archives

May 2, 2016

"Tech" tonics move the Nasdaq

Monday, May 2, 2016

Last week was quite active in the earnings front as several large tech companies announced earnings. The tech heavy Nasdaq was quite volatile as investors reacted to the earnings announcements as well as future guidance.

Fundamentals

Netflix announced earnings of six cents per share on April 18. However, future guidance was weaker than expected and shares tumbled in after-hours trading. Apple earnings disappointed investors, at $1.90 a share on revenues of 50.56 billion dollars, this was the first time since 2003 that Apple showed a revenue decline from the previous quarter. This slowdown is attributed to declining iPhone sales, as well as slowing growth in China. Nasdaq bulls were stunned by Amazon as blew away earnings expectations by posting earnings of 1.07 per share, far above Wall Street consensus of 58 cents and share prices rocketed upward in after-hours trading. Another case for the bulls was Facebook earnings. Facebook announced earnings of 77 cents per share, above the expectations of 62 cents per share. As Facebook nears their 4 year anniversary of their IPO, shares are trading near their all-time high of 120.79.

Technical Notes

Turning to the 3 month continuation chart, the bears seem to be in control as there are several bearish signs present. 14 day Relative Strength Index (RSI) is a bearish oversold level at 25.31. Trading towards the end of last week caused the e-mini Nasdaq contract to drop below the 50 day simple moving average (SMA). The 20 day SMA is still above the 50 day SMA, a bullish sign, but the average has started to curve downward. Another case for the bulls is that although the contract price has dropped recently, trading is still well above the February lows at the 3900 support level.

Dale Jennings, Commodity Analyst

May 3, 2016

Indecision and Weak Dollar Drive Gold

Tuesday, May 3, 2016

Gold futures have flirted with the $1,300 mark over the past several sessions, but prices have been unable to push through and close above this pivotal level. The main driving force behind the Gold rally has been the weak US Dollar. The Fed did little to help the greenback, which broke some key technical support levels. This suggest the Dollar Index may continue to tumble for the foreseeable future, barring a sharp technical reversal.

Fundamentals

In addition to the weak US Dollar Index, central bank policy has aided Gold's recent rise. The Bank of Japan's decision to keep rates steady instead of diving deeper into negative territory drove the Yen higher. It also opened the door for long-term inflation risk. Japan faces deflationary pressure in the near-term, but an extended negative interest rate policy has the potential to create severe inflationary risk down the road. The BoJ move also adds to the air of uncertainty surrounding financial markets. Central banks have become more indecisive, sending mixed signals to traders. Add lackluster economic activity to this and you have all the ingredients in place for defensive traders moving into Gold. The trouble with the Gold rally is the lack of physical demand for the metal. There is a feeling among traders that the rally in Gold and other commodities could be overdone, at least in the short-term, suggesting we could see some consolidation or retracement.

Technical Notes

Turning to the chart, we see June Gold futures contract testing resistance at the 1300 mark yesterday before falling back. The gravestone doji candlestick suggests prices may hint at a possible near-term reversal. Traders may be on the lookout for follow through to confirm the reversal pattern. The RSI indicator is creeping toward overbought territory, which could lead to some price weakness in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


May 4, 2016

Equity Markets on a Wild Ride

Wednesday, May 4, 2016

While inaction by the Bank of Japan last week on additional stimulus measures disappointed market participants, the Reserve Bank of Australia (RBA) lowered rates for the first time in nearly a year, taking the benchmark rate to 1.75% from 2.00% on Tuesday. RBA Governor Glenn Stevens cited low inflationary pressures as a key component for the rate cut and now some analysts are expecting the RBA to potentially lower rates again unless we see an unexpected rise in commodity prices in the coming months.

Fundamentals

The roller coaster ride for equity prices continues as the market climbs and dips depending on the economic news de jour. On Tuesday, it was all gloom and doom as a private estimate on the state of Chinese manufacturing in April came in below forecasts, while the European Commission expects Eurozone growth to be weaker than earlier forecasts. On top of the pour economic data, corporate earnings have been a moderate disappointment, especially as analysts were already toning down their expectations for corporate earnings this quarter. In the U.S. equity prices fell about 1 percent as of this writing, with the S&P 500 now trading at 3 week lows. European and Asian stocks posted generally steeper losses than the U.S., with the German DAX down 1.61%, the Euro Stoxx 50 down 1.53% and the MSCI Ac Asia Pacific Index down 1.30%. The weakness in Chinese manufacturing spilled over to the commodity sector especially the industrial metals such as Copper and Iron Ore, where prices fell due to ample supplies and lackluster demand. One bright spot on Tuesday was the U.S. Treasury market, where 10-year Note yields fell by 8 basis points to yield 1.79%. The U.S. Treasury yield curve continues to flatten with the 2yr/10yr curve falling 47 basis points the past year with 10-yr Notes yielding only 1.05% above the 2-yr Notes. While the long-end of the yield curve is still above the short-end, the flattening of the curve has brought about talk of a recession here in the U.S. While current economic data shows the U.S. economy continues to grow, traders may want to keep a close eye on the Treasury Yield Curve as it could be the proverbial "canary in the coal mine" in regards to whether the U.S. economy is heading into a recession if the curve turns inverted where the short-end of the curve starts to yield higher than the long-end.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice the market making a series of higher highs and higher lows for the past several weeks as any downside corrections have failed to generate enough selling momentum do negate the current near-term upward trend. However we do note that prices have now fallen below the 20-day moving average but more importantly are now trading below the uptrend line drawn from the February 11 lows. The 14-day RSI has moved from near overbought levels to a more neutral reading of 48.17. Support is seen at the 200-day moving average currently near the 2005.75 price level, with resistance found at the April 20 high of 2105.25.

Mike Zarembski, Senior Commodity Analyst


May 5, 2016

Crude Higher on Canadian Fires

Thursday, May 5, 2016

Raging fires near Canada's Oil-sands threaten to lower the country's output, sending Crude Oil prices higher in their wake. In Alberta, at least one major Oil-sands mining operation was halted , as workers were evacuated. Making matters a bit more cloudy for traders, the wildfires are listed as "out of control," which makes the duration an unknown variable. Traders do not know how long the fires will impact capacity and production or whether the fires will continue to spread to other areas.

Fundamentals

Currently, the Canadian wildfires have taken several Oil-sands operations offline, which has removed 500,000 barrels of output. Additionally, the fires have also affected Oil infrastructure. As a precaution, the portions of Corridor and Polaris pipelines have either been shut down or operations were severely limited. These pipelines move 560,000 and 140,000 barrels per day, respectively. Adding insult to injury, trains are not operating in the Fort McMurray area. In Libya, the stand-off between eastern and western factions that has prevented loadings at the Marsa al-Hariga port continues. This could result in the reduction of production within days. The storage capacity at the port has been filling up quickly and is extremely limited. An extended stand-off would likely result in a reduction of output equivalent to the port's capacity, which is around 120,000 barrels per day. This is the latest blow for Libya, which has seen its production decline by ¾'s of the 1.6 million barrel per day the country produced in 2011.

Technical Notes

Turning to the chart, we see the June Crude Oil contract moving steadily higher since bottoming out in February. The next significant resistance area that Crude Oil may encounter is around the 50.00 mark. The RSI is on the high end, which may curb prices.
Rob Kurzatkowski, Senior Commodity Analyst

May 6, 2016

It's all about the Jobs?

Friday, May 6, 2016

Analysts got a glimpse on to what extent private sector payrolls expanded in April and the numbers were rather disappointing. According to the ADP Research Institute, U.S. private sector employment grew by 156,000 jobs last month, well below 194,000 jobs that were created in March. The service sector was responsible for the vast majority of the jobs created in April with 166,000 jobs created. Professional and Business employment rose by 27,000 jobs followed by Trade, Transport and Utilities with 25,000 jobs created. However the Goods producing sector shed 11,000 jobs in April led by a decline in the manufacturing sector of 13,000 jobs.

Fundamentals

Today is the first Friday in May and that means that market pundits are breaking out their crystal balls to hopefully get a read on what the Bureau of Labor Statistics will report for job creation and unemployment for the month of April. Current expectations are for another month of so called "Goldilocks" figures, with an expected increase of 207,000 jobs in April. However, on Wednesday a report on private sector job creation distributed by Payroll's processor ADP stated that only 156,000 private sector jobs were created which was well below the 190,000 plus jobs most analysts were anticipating. This report could help to skew market participants to anticipate a weaker than expected figure from the BLS this morning, although the month to month correlation between the ADP data and the "official" government figures is notoriously inconsistent. The unemployment rate is expected to remain steady at 5.0%, but economists tend to look further into the data and place more importance in figures such as average hourly earnings (+0.3% expected) and average workweek (34.5 hours expected) to gain a better picture on how the labor market is faring. There was some rather positive economic news released on Wednesday, with the ISM Non-Manufacturing Index rising to 55.7 in April vs. 54.5 in March. Index reading over 50 represents expansion in the services sector which has been the major creator of jobs in the U.S. Factory Orders rose by 1.1% in March vs. a decline of 1.9% in February. While this data is lagging, it was still a bright spot on top of the strong ISM data. For more timely data on the employment front, yesterday it was reported that weekly jobless claims rose by 17,000 last week to a seasonally adjusted 274,000. While the increase was higher than anticipated, claims continue to hold below 300,000 which is the benchmark for gauging the strength in the labor force. Traders will have set their alarm clocks early as the employment data is released at 7:30 am Chicago time.

Technical Notes

Looking at the daily continuation chart for the 10-year Note futures, we notice prices attempting a break-out to the upside out of the 4-month long consolidation pattern that has formed. Prices are now back above the 20-day moving average for the first time in over 2 weeks and the 14-day RSI has moved above 50 with a current reading of 56.23. Trading volume has been light overall and we would like to see an increase in volume during the breakout to add to its validity. The next resistance level is seen at the April 7 high of 131-09.5, with chart support now seen at the April 26 low of 129-02.

Mike Zarembski, Senior Commodity Analyst


May 10, 2016

Loonie Drops as Fires Rage

Tuesday, May 10, 2016

The Canadian Dollar has dipped toward the 0.7700 level on falling commodity prices and negative growth outlook. Crude Oil prices were bolstered by the Fort McMurray wildfire, which has severely crippled output in the region. Oil prices were acting as support for the Loonie, but they have now pulled back.

Fundamentals

The Fort McMurray tragedy resulted in GDP projections being scaled down a bit for the quarter. Analysts are now looking for flat growth in Q2 instead of the very modest growth previously expected. The IMF actually revised up its 2016 GDP forecast to 1.75% from 1.50%, but the group updated this estimate prior to the Alberta wildfires. There are still some points that can be taken away from the IMF's assessment. Canada has done a great job coping with the Oil shock and the economy has been resilient, despite Oil and other raw material prices being weak. It will be interesting to see how the economy can cope with the devastation of the wildfires. There is no other natural disaster in the country's history to compare the fire to. Currently, roughly a third of the country's Oil production has been hampered by the fires. TD Bank suggests the disaster could affect unemployment to the tune of 0.2 percent. There has been some talk that further stimulus could be needed to reinvigorate the nation's economy.

Technical Notes

Turning to the chart, we see the June Canadian Dollar breaking through its uptrend line as well as near-term support at the 0.7775 level. The next significant support area comes in around the 0.7500 level. The recent closes below the 20-day moving average suggest that a near-term high may be in place. Prices are trading slightly above the 50-day moving average. Significant closes below the average could be interpreted as adding to near-term bearish sentiment.

Rob Kurzatkowski, Senior Commodity Analyst


Are Precious Metals "Golden" again for Commodity Bulls?

Wednesday, May 11, 2016

Large Speculators were busy adding to an already large net-long position in Gold last week, with the most recent Commitment of Traders report showing that non-commercial accounts added over 56,500 new net-long contracts during the reportable period ending May 3. This brings the overall net-long position to nearly 300,000 contracts. Small speculators also added to net-long positions last week, but to a much lesser extent than the large specs. Non-reportable net-long positions increased by 3,408 contracts last week and now stand at 23,564 contracts.

Fundamentals

The Gold market has been a rather stellar performer in the commodity complex so far in 2016, with prices up over $200 per ounce since the start of the year. The reasons for the renewed interest in the yellow metal are numerous, from concerns about growth or lack thereof for global economy as well as the continued prospects of Central Banks moving towards negative interest rates. However, the biggest catalyst for the Gold market rally appears to be the overall weakness seen in the U.S. Dollar (USD). Going into the 2016, many market participants were holding long USD positions in anticipation that the Federal Reserve would be raising interest rates as many as 4 times in 2016, which would make them unique among the G10 economies that would actually be raising rates this year. Well we know that recent global economic headwinds as well as rather disappointing U.S. employment data has the Fed pulling back on their outlook for rates, and economists are now looking for possibly 2 or even less rate hikes this year. This change in the outlook for U.S. interest rates has started a movement out of the long Dollar trade that continues to this day. A weaker USD is generally seen as bullish for commodity prices that are priced in Dollars, as it makes them "cheaper" for non-Dollar users. Gold especially benefits from a lower Dollar as well as a low interest rate environment, as Gold does not pay a dividend and owning Gold comes with storage costs that can become very unattractive if interest rates are rising. We are also seeing increased interest by investors in holding so called "paper Gold" in the form of Gold ETF's such as GLD. In fact, Gold holdings by GLD are now at their highest levels since the end of 2013. While the Gold market is currently in a short-term correction phase, as we have seen a recent uptick in the Dollar, Gold prices are still holding near some significant resistance levels on the daily charts that if they fail to hold, could spur additional buying from trend-following traders.

Technical Notes

Looking at the daily continuation chart for Gold futures, we notice what appears to be a bull flag technical formation being created following a price correction after prices just missed making a new 16-month high. The recent correction has stalled as prices touched the 20-day moving average at 1258.70. We do notice the 14-day RSI has formed a bearish divergence, as this momentum indicator failed to make a new high following the unsuccessful attempt of a test of the January 2015 high of 1307.80, which is now considered the next major chart resistance level.Chart support is found at the March 28 low of 1206.00.

Mike Zarembski, Senior Commodity Analyst

May 17, 2016

Greenback Comeback?

Tuesday, May 17, 2016

The greenback has mounted a small comeback in recent sessions, aided by weaker economic data out of Europe and a softer Japanese Yen. The strength in the US Dollar Index over the past several sessions has solely come from outside markets. Traders are not expecting the Federal Reserve to tighten more when the FOMC convenes in June. There is a paltry 4% chance of a rate hike in June, according to Fed Funds futures. The upcoming G7 meeting has put a bit of pressure on the Japanese Yen, which has been strong against the US Dollar in recent months.

Fundamentals

The upcoming G7 meeting has been a focal point for traders, as world leaders cannot come to a consensus on currency policy. Nevertheless, Japanese leaders are expected to take a bit of heat from their G7 counterparts, even if it is only lip service. Japan is hoping leaders will come to an agreement on the need to boost fiscal spending, which has been resisted by Germany. Such an agreement would likely provide Japanese Premier Shinzo Abe a justification to delay raising the country's sales tax and give him leverage to deploy more fiscal stimulus. An agreement to increase government spending also could put some downward pressure on the Euro. Traders have been a bit more optimistic that retail sales can strengthen, which could increase the likelihood of a rate hike from the Fed. Wednesday's FOMC minutes will give traders a bit more insight as to the Committee's mindset and governors' leanings. This Thursday is a somewhat loaded day for economic data, with Philly Fed and Leading Indicators accompanying the usual Initial and Continuing Claims data.

Technical Notes

Turning to the chart, we see the cash US Dollar Index (DXY) prices bouncing back strongly in recent sessions. The DXY is now back above previous support of 94.00. The recent close above the 20-day moving average suggests that a near-term low may be in place. Prices have been testing the 50-day moving average over the past several sessions. A close above the average could be a signal of further near-term strength.

Rob Kurzatkowski, Senior Commodity Analyst


May 18, 2016

Is 50 the new 20?

Wednesday, May 18, 2016

This morning the weekly Energy Information Administration's energy stocks report will be released and traders are expecting a draw-down of Crude supplies for the second consecutive week. Traders are expecting Crude inventories to have fallen by 2 million barrels last week, as refinery utilization is expected to show an increase of 0.7% to 89.8% of capacity. Despite the rise in refining, analysts expect a decline in both gasoline and distillate inventories of 700,000 and 800,000 barrels respectively.

Fundamentals

Remember just a few months ago when all one would hear in the media was how Oil prices were heading lower and many pundits were expecting to see Crude trade near $20 per barrel. Well as of this writing, the front-month June Oil contract was trading near $48 per barrel and at its highest levels in about 6 months. So what happened that has turned the recent price trend in Oil from bearish to bullish? Recent declines in Oil production from Canada due to the wildfires in Alberta as well as reports that Nigerian Oil production has fallen to 27-year lows due to continued violence by militants in this Oil rich African nation. In addition to supply concerns, we have seen the value of the U.S. Dollar weakened in 2016, which caught many traders by surprise. A weaker Dollar is generally viewed as supportive for commodity prices, as it makes dollar-denominated commodities cheaper for non-dollar users. The recent rally in Crude joins that of other commodities such as Soybeans, Sugar and Gold, which also have displayed a bullish bias of late and may signal that a significant low for commodity prices may have occurred. As prices now appear poised to test psychological resistance at $50 per barrel, traders should be on the alert for additional selling pressure to emerge from producers who may wish to resume forward hedge selling as prices rise, and efficient producers can lock in profits above $50. Then it will be up to the so-called "trend followers" to absorb the hedge selling in order to propel prices higher and trigger short-covering activity as weak Oil bears are forced to the exits.

Technical Notes

Looking at the daily chart for June Crude Oil, we notice the 20-day moving average (MA) has recently crossed above the 200-day MA. This is generally viewed as a bullish signal for prices, as both short and long-term momentum traders would likely be adding to long positions on the crossover. Momentum has turned strong, with the 14-day RSI currently reading 67.73. $50.00 is seen as the next resistance level for the June contract, with support found at the May 10 low of 43.03.

Mike Zarembski, Senior Commodity Analyst


May 19, 2016

Can Corn Break Out of Its Range?

Thursday, May 19, 2016

Corn futures pulled back in overnight trading, giving back some of the recent gains. Corn futures have rallied for 5 consecutive sessions prior to today, with prices rallying to the highest level in four weeks, driven by concerns about the South American crop. The concern over the South American crop has been enough to offset the weaker US Dollar.

Fundamentals

Last week's USDA report showed Brazilian Corn production was expected to fall to 81 million metric tons. Private forecasters are shaving another 5 million metric tons off this figure, which would bring the crop size down to 76 metric tons. The latest lowered estimate is close to what Michael Cordonnier of Soybean and Corn Advisor called a worst-case scenario in late April, when he said Corn could fall to 75 million tons, instead of the projected 79 million tons. To say that the drought is severe is an understatement. In the US, plantings are at 75%, which is well ahead of the 70% 5-year average. It is interesting to note that Indiana, the fifth largest corn producing state, is only at 45% plantings progress, versus the 5-year average of 61%. Corn is also emerging ahead of pace. According to estimates, 43% of the nation's Corn crop has emerged, versus the 5-year average of 34%. The strength of the Crude Oil market has provided very strong outside support for the grain market. The US Dollar Index continues to rebound, which could test Corn traders' resolve.

Technical Notes

Turning to the chart, we see the new crop December Corn futures testing resistance around the 402.50 level. If prices can break through this minor resistance level, Dec Corn could test heartier resistance near the 410 and 420 marks. If Corn fails to break through resistance here, prices may be stuck in another sideways trading rut. Dec Corn is trading above the major moving averages at the moment.

Rob Kurzatkowski, Senior Commodity Analyst


May 20, 2016

Did Fed Put Rate Hike in Play for June FOMC Meeting?

Friday, May 20, 2016

Following the release of the Fed minutes on Wednesday, traders appeared surprised by the rather hawkish tone coming from the voting members of the Federal Open Market Committee (FOMC), which was reflected quickly in the Fed Funds futures market. The probability of an interest rate hike at the June 15 FOMC meeting increased from 4% to over 30% following the release of the Fed minutes. While the Fed still appears to be "data dependent" and any rate hike will be contingent on continued improvement in economic conditions, it appears that the Fed feels pretty good about the current pace of growth in the U.S. economy -- or at least good enough to alert the "market" that a rate hike is potentially on the table in June.

Fundamentals

The Federal Reserve certainty threw market participants a curveball on Wednesday, as a release of the minutes from the April FOMC meeting showed that Fed officials were a bit more upbeat about the global economy than traders were. The biggest takeaway from the minutes was that an interest rate hike at the June 15 FOMC meeting is now potentially on the table when financial markets appeared to all but rule out this possibility previously. The reaction in the markets was swift, with equities staging a sell-off and bond yields increasing sharply in reaction to the release. Commodity markets also were impacted, especially Gold, which saw increased selling pressure emerge as the U.S. Dollar index rose to nearly 2-month highs. The heightened possibility of a rate hike as soon as next month will likely put increased investor scrutiny on upcoming economic data to help gauge the certainty that the Fed will initiate a rate hike as we head towards summer.

Technical Notes

Looking at the daily chart for the June 2-year Note futures, we notice that prices are holding near the lower bounds of the recent price rage established back in mid-March. Prices did rebound slightly following the steep sell-off on Wednesday after the release of the April FOMC minutes. The 14-day RSI just missed reaching oversold levels prior to Thursday's recovery but are still reading a rather weak 36.97 as of this writing. Major chart support is seen at the March 2016 lows of 108-23.75, with resistance seen at the February "spike" highs of 109-24.50.

Mike Zarembski, Senior Commodity Analyst

May 24, 2016

One Month and Counting until Crucial Brexit Vote

Tuesday, May 24, 2016

In exactly one month, on June 23, the United Kingdom will vote in a referendum to determine if the UK should remain in or exit from the European Union. As in any hotly contested election, the political rhetoric has heated up, with claims and counter claims being made by both the Remain and Leave campaigns.

Fundamentals

George Osborne, the Chancellor of the Exchequer and a supporter of the UK remaining in the EU, has stated that Britain would undergo a "Do It Yourself" recession should voters chose to leave the EU. Mr. Osborne and Prime Minister David Cameron released a paper with gloomy economic predictions. It predicts a drop in GDP between 3.6 and 6%, lower housing prices, weakening of the British Pound, a half million job losses, and an increase in inflation. The Leave campaign has dismissed these figures as fearmongering and has countered with their own claim that Turkey will be admitted to the EU, potentially as soon as 2020. Polling has been mixed, but most recent polls show the Remain campaign winning. There's still a month to go in the campaign, and undecided voters could swing the referendum one way or the other.

Technical Notes

Turning to the 3-month continuation chart, we see the British Pound has been quite choppy. The bulls are trying to hold support above the 20-day Simple Moving Average (SMA), which was a previous short-term resistance point. Longer-term support is found at the 50-day SMA. 14-day Relative Strength Index (RSI) is a very neutral 45.11.

Dale Jennings, Commodity Analyst


May 25, 2016

Oil at 7-Month Highs After API Surprise

Wednesday, May 25, 2016

Crude Oil futures reached 7-month highs in overnight trading after the American Petroleum Institute ("API") announced a larger than expected drawdown in inventory levels. Traders await today's Energy Information Administration ("EIA") inventory report to offer confirmation of the API. Prices have continued to march on, despite uncertainty over Fed policy for the rest of the year. Economic data has been strong enough to suggest that the global economy can withstand both higher energy prices and higher interest rates.

Fundamentals

The API reported an inventory drawdown of 5.1 million barrels of Crude Oil last week. This more than doubled analysts' estimates of a 2.5 million barrel reduction from US stockpiles. The market bias has favored the bull camp, and what does not impede momentum only fuels the rally. Due to API data, many traders are now looking for a similar inventory decrease in today's EIA report. Additionally, some traders are expecting the EIA to report that US Crude Oil production has fallen to below 9 million barrels per day, down from peak production of 9.7 million barrels per day. The recent supply disruptions in Canada, Libya and Nigeria have supported prices and likely greatly reduced downside risk for Oil.

Technical Notes

Turning to the chart, we see the July Crude Oil contract steadily trending higher. Prices have reached their highest levels since October and could test the relative weekly high close from last month of 49.63. There is heavy chart congestion between the 47.75 and 53.20 levels. If the Oil market can breakout here, the real test comes in around 60.00, which is stout resistance. The RSI has moved into overbought territory, which could be a drag on prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

May 26, 2016

Grains Markets Heat-Up Ahead of Holiday Weekend

Thursday, May 26, 2016

As June approaches, we can finally say good bye to "El Nino," the weather event triggered by a warming of tropical waters in the Pacific Ocean. Weather forecasters report that Pacific waters are starting to cool, which is signaling the end to one of the strongest El Ninos in recorded history. Now analysts are on the watch for the potential appearance of El Nino's sibling "La Nina," which is an abnormal cooling of Pacific waters that has in the past caused weather concerns including drought conditions for the U.S. grain producing regions.

Fundamentals

It appears that trend-following commodity funds are leading the Corn and Soybean markets higher of late, with mixed fundamental data becoming an afterthought. Front-month July Corn continues to make a run at the "spike" high of 407.25, and front-month July Soybeans have shaken off a recent price correction to move within striking distance of chart resistance at 1091.50. The most recent Commitment of Trader's report shows that large and small speculative accounts added nearly 34,000 new net-long positions among the entire grain complex, with new long Corn positions accounting for over 21,000 contracts and Soybeans over 7,600 contracts. While technicals appear in control currently, fundamentals are still important, and here the outlook appears a bit cloudy. Crop concerns in Brazil and Argentina have analysts looking for the U.S. to potentially increase its export business. However, much of this will be dependent on the performance of the U.S. Dollar. In addition, it appears that U.S. producers are generally off to a good start with Corn plantings, and recent price gains for Soybeans have traders expecting more acreage to shift to Soybeans this spring than the USDA had originally forecasted. The wildcard for U.S. Corn and Soybean production this season is the weather, and the potential of a La Nina weather event may be influencing a bullish bias to prices in the form of a risk premium in case of weather issues this summer. The National Weather Service in their longer-range outlook has most of the U.S. grain production areas at normal to above-normal temperatures through August, with normal to above-average precipitation. However, should a La Nina event become likely, we may see potential issues with precipitation as we move into late summer, which could provide a difficult finish for this year's crop and potentially tighter supplies than originally anticipated.

Technical Notes

Looking at the daily chart for November Soybeans, we notice what could be a bull flag technical formation being developed. To confirm this chart pattern, we would need to see prices break above the upper trend line and ideally on above average trading volume. Prices have once again moved back above the 20-day moving average following the recent price correction, which could generate additional buying interest by short-term momentum traders. The 14-day RSI has turned upward following a correction from overbought levels, with a current reading of 62.06. Resistance is seen at the May 10 high of 1079.75, with support seen at the recent low of 1018.75 made on May 24.

Mike Zarembski Senior Commodity Analyst

May 27, 2016

Running of the Bulls

Friday, May 27, 2016

The S&P 500 closed at an all-time high of 2130 just a little over a year ago on May 21, 2015. Since then, volatility has dominated the market with falling commodity prices, slower growth in China, Eurozone negations with Greece, a referendum on the UK remaining in the European Union, and the start of the US Presidential election cycle all dominating the news.

Fundamentals

The US equity markets have been on a bullish run as of late, with the S&P 500 trading within 2% of the all-time high reached last year. 1st quarter GDP in the US was revised upward to .8% from .5%. The forecast for a Fed rate hike has increased drastically recently from almost none to about 30%. Fed Chair Janet Yellen has two upcoming speeches, today at Harvard University and June 6th at the World Affairs Council in Philadelphia, before the next Fed meeting on June 14th and 15th. Fed watchers will be keeping a close eye on her words to see if there is any hint as to Dr. Yellen's position on a rate hike. Although it has been a slow week for news with the upcoming Memorial Day holiday in the US and a bank holiday on Monday for the UK, traders will want to also keep an eye on the upcoming non-farm payrolls announcement on Friday, June 3.

Technical Notes

Turning to the 3-month continuation chart, there are several bullish technical signs to note. The support level of 2025 has been tested several times and held. The 20- and 50-day Simple Moving Averages (SMA) have converged, with the 20-day SMA looking to cross above the 50-day SMA. 14-day Relative Strength Index (RSI) is a neutral to bullish 61.40, while 2100 is the point of next resistance.

Dale Jennings, Commodity Analyst


May 31, 2016

Gold Weaker on Yellen Comments

Tuesday, May 31, 2016

Gold is off to a softer start to the week after Friday's comments from Fed Chair Janet Yellen. Yellen had a decidedly more hawkish tone to her comments than she had in recent public appearances, emphasizing that inflation risk is picking up and that the central bank may have to raise rates sooner rather than later. The comments added further reinforcement for the US Dollar Index, which has been in recovery mode of late. The combination of a stronger Dollar and strong outside markets, like Crude Oil, have left the Gold market vulnerable of late.

Fundamentals

The US Dollar Index has continued its strong month of May after appearing to be on the verge of a technical collapse. The index has climbed back above some important near-term technical levels, which suggests that prices may continue to press on. Janet Yellen's comments follow up FOMC minutes which moved away from the dovish tone of previous meetings. It certainly appears that the central bank is keen to raise interest rates at the earliest opportunity it sees fit. Traders will be paying close attention to key economic queues in the coming weeks to get a feel for the July meeting, starting with the employment and non-farm payroll data this week. The likelihood of a Fed rate hike in July is 50-50. A strong showing could tip the scales toward a rate hike in July. Physical demand for Gold has been poorer than previously expected, which has left Asian Gold dealers and jewelers with large inventories. Buyers had been reluctant to purchase metal when prices were rallying and have abstained from value buying to this point. This likely indicates that buyers could remain on the sidelines until prices fall further. Two-thirds of India's Gold demand comes from rural areas, where jewelry is a traditional store of wealth. This is also planting time, so farmers may be holding off from purchasing Gold in favor of seeds and fertilizer.


Technical Notes

Turning to the chart, we see the August Gold contract continuing to follow-up on the small double top formation. Prices closed below near-term support around the 1218 level. Prices are closing in on the 1200 level, which can be seen as technical and psychological support level.

Rob Kurzatkowski, Senior Commodity Analyst